Title: Essentials of Accounting for Governmental and NotforProfit Organizations
1Essentials of Accounting for Governmental and
Not-for-Profit Organizations
- Chapter 4 Accounting for the General and Special
Revenue Funds
2Overview of Chapter 4
- Accounting for Nonexchange Transactions
- Modified Accrual Basis
- Common Entries during the year
- The closing process
3Exchange vs Nonexchange Transactions
- GASB Statement No. 33 indicates the timing will
be different for - Exchange and exchange-like transactions
- These are like true sales you pay a certain
amount and receive equivalent value in return - nonexchange transactions
- For taxes and certain other transactions you pay
more or less than the value of services received
4Exchange Transactions
- Revenue resulting from exchange transactions is
recognized in the period(s) that it is earned
- For example, revenue from the rental of
government property would be recognized over the
term of the lease
5Types of Nonexchange Transactions
- Derived tax revenues
- sales, income, motor fuel taxes
- Imposed nonexchange revenues
- property tax, special assessments,
fines/forfeits - Government mandated (expenditures)
- federal requires lower level expenditures
- Voluntary nonexchange transactions
- grants, donations
6Revenue Recognition for Derived Taxes
- Derived Tax Taxes assessed on exchange
transactions. These include sales taxes, income
taxes, and motor fuel taxes. - Tax revenue on derived tax revenues is recognized
when the underlying transaction occurs (for
example, record sales taxes as retail sales are
made) or when the tax is received by the
government, whichever is earlier.
7Revenue Recognition for Imposed Taxes
- Imposed Tax Revenues Taxes and fines imposed by
governments but not related to specific
transactions. These include property taxes,
special assessment property taxes, and fines and
forfeits. - Recognize the asset (generally a tax receivable)
when an enforceable claim exists or when the tax
is received by the government, whichever is
earlier. - Revenues for property taxes should be recognized
in the period for which the taxes are levied.
8Revenue Recognition for Intergovernment Grants
- Intergovernment Grants These revenues result from
the Federal or State Government making grants to
other governments. The grants are given to
support specific activities. - Recognize the revenue when the eligibility
requirements are satisfied.
9Revenue Recognition for Voluntary Grants
- Voluntary Grants Typically these are resources
provided by individuals to support specific
activities (e.g. expanding the book holdings at
the library). - Recognize the revenue when the eligibility
requirements are satisfied.
10Review Modified Accrual vs. Accrual
- Accrual
- Recognize revenues when earned
- Match expenses against the revenues
- Modified Accrual
- Recognize revenues when measurable and available
(available to pay this years bills for example,
property taxes received within 60 days of year
end) - Recognize expenditures when the liability is
incurred no attempt to match to revenues, match
to period of occurrence only - Exception recognize interest and principal
payments as expenditures when DUE
11Modified Accrual Revenue Cycle
- Property tax for 2004 levied 1,000,000
- 800,000 is collected in calendar year 2004
- 120,000 is collected in January and February
2005 - 80,000 in collected in March and April 2005
- ENTRIES DURING 2004
- Record levy Taxes receivable
1,000,000 - Revenue (tentative) 1,000,000
- 2004 collections Cash 800,000
- Taxes Receivable
800,000 - Year end adjustment Revenue 80,000
- Deferred Revenue 80,000
- (Receipts of property taxes over 60 days after
year end will be a 2005 revenue)
12Modified Accrual Expenditure Cycle
- Supplies are ordered at an estimated cost of
3,000 - Supplies are received with an actual cost of
3,000 plus shipping of 250 - Invoice from the supplies is paid
- Journal Entries
- Place Order Encumbrances 3,000
- Budgetary Fund Balance
- Reserve for Encumbrances 3,000
- Receive Goods Expenditures 3,250
- Accounts Payable 3,250
- Budgetary Fund Balance
- Reserve for Encumbrances 3,000
- Encumbrances 3,000
- Payment Accounts Payable 3,250
- Cash 3,250
13Quasi-External Transactions
- These are between funds but they are
exchange-like transactions with an objective
basis for determining the amount - Treated as revenue and expense or expenditure
- Example, sale of electricity by the Electricity
Enterprise fund to the General Fund - Would be treated as revenue for Enterprise Fund
and expenditure for General Fund - GASB 34 calls these Interfund Services Provided
Used instead of quasi-external
14Reimbursements
- Assume the UPS delivers a 10,000 shipment of
supplies which are initially recorded in the
General Fund as follows - GF Expenditures 10,000
- Liability 10,000
- Later, it is discovered that 2,000 of these
supplies were for the Electricity Enterprise
fund, and the supplies are given to the
Electricity fund. The following would be
recorded - GF Due from Electricity 2,000
- Expenditures 2,000
- EF Expenditures 2,000
- Due to General Fund 2000
15Reimbursements Contd
- Reimbursements do not show up separately on the
Activity or Budget statement, but are internal
balance corrections
- When the reimbursement is made, the expense or
expenditure is recorded in the correct fund and
the incorrect expense or expenditure is decreased
16Transfers
- Any shifting of resources from one fund to
another where there is no expectation that the
amounts will be repaid. - Transfers In are considered Other Financing
Sources - Transfers Out are considered Other Financing Uses
- Recurring Transfers such as for debt service may
be built into the budget
17The Closing Process - Slide 1
- Background the business closing process
- Close revenues and expenses to income summary,
close income summary and withdrawals to Retained
Earnings or Capital
18The Closing Process - Slide 2
- Closing process for government type funds needs
to accomplish the following - Get rid of budgetary accounts
- Close Revenues, expenditures, encumbrances, and
related other financing sources or uses to Fund
Balance - Reclassify the Budgetary Fund Balance Reserved
for Encumbrances to Fund Balance Reserved for
Encumbrances